Is China’s Economy Getting Back on Track?

The National Bureau of Statistics released the data on Saturday, showing that the Chinese economy is gaining momentum. The key driver of growth, property investment, was up 18.2 percent in May from a year earlier, against 9.2 percent in April, according to Dow Jones Newswires.

The substantial rise in exports and imports in May also suggests a stronger economy. Exports were up 15.3 percent in May on Y-o-Y basis, higher than the 6.9 percent forecast by economists. Similarly, May imports also grew 12.7 percent against the expected 3 percent rise.

Increase in auto sales indicates that the Chinese consumers aren’t shying away from big ticket purchases. Passenger-vehicle sales were up 22.6% from a year earlier to 1.28 million vehicles, China Association of Automobile Manufacturers said Saturday.

In the past few weeks, the Chinese government has rolled out a number of incentives to support the economy which includes targeted tax cuts, purchase incentives for energy efficient appliances, and accelerated approval of investment projects. Additionally, the government plans to increase spending on railway construction.

Analysts think that the Chinese policymakers likely have access to the economic data, even before it’s released publicly. So China’s central bank, the PBOC, may have seen the inflation reading before it pulled the trigger on interest rates. On Thursday, the PBOC cut benchmark lending and deposit rates by 0.25 percentage point, and also widened the range within which they can move.

However, economists are still doubtful whether the dragon is really back on track. “The fact that it is stronger than expectations is relatively positive news, but that should be caveated by the fact that monthly trade data is very volatile from month-to-month,” said IHS Global Insight economist Alistair Thornton.

Another economist at Citigroup, Shuang Ding said, “The turning point hasn’t come yet, economic growth is still declining.” He said he now expects GDP growth for the second quarter to be between 7% and 7.5%, down from his earlier forecast of 7.5%. In the first quarter, China’s GDP was up 8.1% from a year earlier.